The 20th Anniversary of 9/11

A Story From the South Tower


It was 20 years ago this month when Stanley Praimnath saw the plane coming right at him.

The morning of September 11, 2001 was as clear, bright, and beautiful as could possibly be in downtown Manhattan.  On that day, Stanley worked as a bank executive on the 81st floor of the World Trade Center’s South Tower.  When the first plane struck the North Tower at 8:46 AM, Stanley wasted no time and made to leave the building.  But when he reached the ground floor, tower security told him to go back to his office.  The building, they said, was secure.

Stanley went back up.

The phone was ringing when he returned to his desk.  It was a colleague from Chicago, calling to see if he was okay.  He assured her that everything was fine.  Then, by pure chance, he turned toward his window.  As Stanley later described it:

“…for no reason, in mid-sentence I just raised my head and looked to the Statue of Liberty and what I see is a big plane coming towards me…a big gray plane, with a red stripe.  I dropped the phone, screamed, dove under my desk and said, ‘Lord, you take over. I can’t do this.’”1 

Within seconds, the tip of the plane’s left wing sliced through his office.  Stanley was covered in debris, but the good news was that he was alive.  The bad news was that he was trapped.

Three floors above, a man named Brian Clark was wrestling with the most important decision of his life: Up or down?  As the volunteer fire warden for his company, Brian had gathered several survivors together.  They began going down, until they were met by a woman who told them the stairs were impassable.  They would have to go up, she said, to get away from the fire and smoke.

While the group debated, Brian heard a banging sound.  Then, in the distance, a voice shouted, “Help, I’m buried and can’t breathe.  Can anybody hear me?”

There was hardly any time.  The floor was becoming engulfed in smoke, and Brian’s group had already decided to go back up.  But Brian and another man decided to stay.  “We’ve got to go get this guy,” he said.  Brian squeezed through a partially blocked doorway to make it onto the 81st floor.  Then, he began searching through the darkness and wreckage with a small flashlight.  He clambered over debris and moved fallen drywall while the voice guided him.

Finally, Brian reached a wall of fallen rubble.  Near the top was a gap, and through the gap stretched a desperate hand.  It was Stanley Praimnath.

By this point, Brian’s colleague found the smoke too unbearable and went back to join the others on a higher floor.  (He would eventually change his mind and head back down and was the last person to escape before the tower collapsed.)  Stanley, too, kept repeating that he couldn’t breathe, that he was suffocating.  The heat and the smoke must have been immense, but Brian refused to leave.  He cleared the blockage as best he could, until finally he was able to peer over the top of a fallen wall and see the man he was trying to rescue.

“You must jump,” Brian said.  “You’ve got to jump out of there.”1

So, Stanley jumped – just high enough for Brian to grab him and pull him over.  The two fell in a heap and embraced.  “I’m Brian,” one said.  “I’m Stanley,” said the other.  The two men had worked in the World Trade Center for years, just three floors from each other, but it was the first time they had ever met.

When the plane crashed into the South Tower it severed two of the three emergency stairwells in the building’s core.  But the last stairwell, the one farthest from the plane’s impact, was miraculously spared.  This was the stairwell Brian and Stanley went down.  Carefully, leaning on the railing and on each other, they navigated through the smoke, over collapsed drywall, and around running water from severed sprinkler lines.  Stanley’s leg was injured, so they had to go especially slow.  At some points, the walls were cracked, and they could actually see flames spreading through the building.  But they kept going, rescuer and rescuee, all the way down to the bottom.  Eighty-one flights of stairs in less than fifty minutes.

When they reached the ground, they made their way to a nearby church.  That’s when Stanley finally broke down and cried.  “I think this man saved my life,” he told the ministers.  But Brian didn’t think of himself as a hero.  He knew that if he hadn’t stopped to listen to that voice in the darkness, if he hadn’t had the courage to find Stanley’s hand in the chaos, if he hadn’t had the strength to grip that hand as tight as he could and say, “Jump!”, then he may well have gone up the stairs, too – for which there would be no coming down.

“Stanley,” he said, “I think you might have saved mine, too.”


The September 11 attacks were the worst acts of terrorism our country has ever known.  No one who witnessed the tragedy, either in person or on television, can forget the fear and pain we felt.  But twenty years later, it’s not terror that endures, but inspiration.  Countless people performed countless acts of bravery, charity, and sacrifice that day.  Bonds were forged on 9/11 that cannot be broken.  Bonds between victims’ families.  Bonds between survivors.  (Brian and Stanley remain close friends to this day.)  While the towers fell, the country remained standing.  Over time, fear fades.  Pain eases.  But hope and heroism endure forever.  All because of people like Brian Clark, who, in the midst of smoke and flame, heard a voice call for help…and went towards it.

As we observe the twentieth anniversary of that fateful day, I wish you and your family hope, inspiration, and peace.  May we never forget the strength and sacrifice shown by so many on that clear, bright morning – and in remembering, grow stronger ourselves.


P.S. This story was part of a documentary series by National Geographic. The documentary series can be streamed on Hulu (Link Below).

9/11: One Day in America



Paycheck Protection Program Update April 20, 2020

Loan Disbursement

We received an email Friday night with our PPP documents. (Thank you to Columbia Bank for working late!)


The loan documents were straight forward and allowed an email response. No surprises.


Columbia Bank stated in their transmittal email that the funds might be deposited into our business account on Monday April 20- even if the loan documents were not signed. However, we would not be able to use the funds until the documents were executed and returned. In fact, the funds were deposited in our account on Saturday. Interesting.


As we continue going through this process, we want to keep you informed as much as possible. As always if you have any questions or concerns, do not hesitate to contact us.




Vaughan & Co. Securities Inc.

Family Meeting Series Part 1

Dad Needs Memory Care Assistance

Long-time client, his wife and two adult children came to the office recently.  Dad was a long-time corporate executive who ran U.S. operations for a multi-national company.  He handled all of the Family finances.  Mom ran the house and the Family but had no interest in the Family finances.  (My mistake was to allow this situation to continue for too long.  Today, I would no longer allow Mom to be absent from their Annual Meeting.)  The children were unaware of their parents’ financial situation other than to be thankful for the generous gifts to the grandchildren.  Retirement was destructive both financially and physically to this couple.  Health issues and accidents accumulated.  The Big House, the vacations and country clubs were maintained for many years after the couple could no longer afford them.

When Dad started to develop memory issues the financial problems became apparent.  Mom had to learn fast but Dad would not give up control, a symptom of his memory problems.  Although the children were aware of the memory issues, they were not aware of the financial issue.  What should the Family do?

One of the most demanding topics for a family to deal with is the development of a memory loss by the family matriarch or patriarch.  This problem can be compounded in a situation where the memory loss issue develops in the family member who has always handled the family finances, and perhaps even had created the family wealth.  Interestingly, my experience has been that the memory loss can initially develop around financial matters.  The family member has been very strong on finances and was very comfortable maneuvering numbers and financial projections in their own mind.  Suddenly the family member has trouble calculating the tip at dinner.

What should the family do?  How might the family address the matter in a family meeting?  Typically, two related topics.

First, what healthcare services may be needed for the family member? And second, how will the family pay for those healthcare changes?  What changes might take place in the financial and  the family investment program to respond to these needs?  To start, the Family should develop an approach to the medical care that is necessary.  It is common for these problems to linger.  The spouse of the person with memory loss may wait longer than they should before seeking help.   The caretaking spouse can even do some damage to their own health in the caretaking process.   There is a good chance the Family will not agree on what is appropriate.  The Family should have these conversations about managing expectations far earlier than the actual implementation of the strategy.  There also should be some conversation about expected contributions by children in both time, effort, and management of parental health and financial needs.  As always, conversations in advance of the events can be developed before there is an emergency.

The Family should evaluate the circumstances.  If the caretaking spouse is unable to do routine activities, such as make appointments, see friends, take care of their own financial matters.  These are all indications that professional help is needed.  Daycare or home healthcare aids may be necessary.  It is very useful to have family meetings on these matters early in the process.  The cost of home healthcare help can start at a reasonable level.  When the help advances to all day care, you can move into the hundreds of dollars per day cost.

Of course, the cost to maintain memory care is easiest to bear when the family has significant financial resources.  All day care can move from a couple of thousand a month up to a $8,000 or $9,000 per month.  It is important to recall that the care amounts are in addition to ordinary monthly living expenses.

Alternatively, long-term care insurance may have been purchased many years ago.  In many cases, these long-term care policies were issued at very reasonable premium structures, but recently, they have become much more expensive with shorter terms for benefits.  All these programs must be purchased well in advance of any memory issues developing.  If a family does not have the financial resources to address the medical care, then they must immediately begin planning towards less expensive alternatives, such as Veterans facilities, and possibly the use of Medicaid facilities.  It is beyond the scope of this memo to discuss the full range of requirements to qualify for Medicaid.  However, there are elder care lawyers that specialize in this area, and their expertise can be crucial.  Medicaid can be available and will allow the spouse to live in the family home.  Support of the spouse is also allowed by Medicaid.  Assets cannot be transferred from the spouse with the memory issue within five years of eligibility without penalty.  It may be useful for any caretaking spouse who is working to make significant contributions to a retirement plan or 401(k) plan and accumulate assets in their own name.  The joint funds from the spouse's IRA who's having memory issues can be used to support the couple.  Investment strategy, where if the family is concerned about resources, might be changed.  The Family may decide to adopt a more aggressive equity-oriented strategy.  The approach might be that if the markets move against them, their qualification for Medicaid may come sooner, and if the markets move in their favor, the family may be able to pay for the care.

The investment strategy change could apply to the caretaker’s spouse in that she might decide to have a more equity-oriented approach.  Her money has to last a very long time, and Medicaid would not attach her retirement assets.  The family should also keep in mind that the family home is typically exempted from Medicaid planning attachment.  The caretaking spouse may decide to pay down the mortgage.  Expenses of living can come from the parent who has memory loss issues and has  potential medical care.

Our firm has developed a significant expertise in helping families think through these issues on their own.  We also have an extensive relationships with elder care counsel and primary care home healthcare providers that could also assist them, independently of the medical care for the patient.

Please contact us, to setup your family meeting today.

What is an Inverted Yield Curve?

If you ask an economist what makes them toss and turn at night, chances are they’ll tell you, “Fear of missing the warning signs of a recession.”  After all, for anyone who studies the economy for a living, few things could be worse than a sudden economic slump catching you by surprise.

That’s why many economists rely on certain indicators to predict if there’s rough weather ahead.  Historically, one of the most reliable indicators is the inverted yield curve.  This is when the yield on long-term bonds drops below the yield on short-term bonds.  Why does this matter to economists?   Because an inverted yield curve has preceded every recession since 1956.1

Long-Term Bond Yield Hits Record Low2
Stocks Skid as Bonds Flash a Warning
The Wall Street Journal, August 14, 2019

On August 14, the yield on 10-year Treasury bonds dropped below 1.6%, officially falling beneath the yield on 2-year Treasury bonds for the first time since 2007.4  That’s an inverted yield curve.  The markets responded the way children do when a hornet gets inside the family car – they panicked.  The Dow, the S&P 500, and the NASDAQ all fell sharply, with the Dow plunging over 700 points.3

The obvious question, of course, is “Why?”

It’s a smart question!  To the average investor, the term “inverted yield curve” probably doesn’t sound very scary.  So, why does it have the markets freaking out?  Let’s break it down by answering a few basic – but also smart – questions.

  1. What’s a bond yield, again?

A bond yield is the return you get when you put your money in a government or corporate bond.  Whenever an investor buys a bond, they’re agreeing to loan money to the issuer of that bond – the government, in the case of Treasury bonds – for a specific length of time.  Typically, the longer the time, the higher the yield, as investors want a greater return in exchange for locking up their money for years or even decades.  That’s why the yield on long-term bonds is almost always higher than on short-term bonds.  When these trade places, we have an inverted yield curve.

  1. Okay, so why have bond yields inverted?

Bear with me here, because I’m about to get a little technical. 

Bond yields have an inverse relationship with bond prices.  That means when prices go up, yields fall, and vice versa.

What do I mean by price?  Well, investors must pay to buy bonds, of course, and when more people buy them, the price of these bonds goes up.  (It’s the basic law of supply and demand: When the demand for something increases, so does the price.)   When that happens, yields drop.

Investors often see bonds as safe havens of sorts, especially during economic turmoil.  Stocks, on the other hand, tend to be seen as “higher risk, higher reward” investments.  In this case, investors are selling their stocks and plowing more and more money into long-term bonds, pushing prices up and yields below that of short-term bonds.  The fact investors are doing this suggests they’re not optimistic about the near-future health of the economy and are seeking safe places to park their money.

  1. Why are investors so worried about the economy?

On the home front, it’s largely because of the trade war between the U.S. and China.  As the two nations engage in an ever-growing battle of tariffs, the fear is that businesses in the U.S. will have to raise prices, thereby hurting consumers.  On August 13, President Trump decided to delay the most recent round of tariffs until December, saying he didn’t want tariffs to affect shopping during the Christmas season.5  Previously, Trump predicted tariffs would not hurt U.S. businesses, so this sudden about-face suggests even he is worried.

Investors are also worried about a slowdown in the global economy.  Two of the world’s most important economies, China and Germany, have both shrunk.  Put all these things together and it’s not hard to see why investors worry about a recession in the near future.

Fears the recent news about inverted yield curves will only stoke.

  1. So is a recession imminent?

As I mentioned earlier, inverted yield curves have preceded every recession since 1956.  This includes the Great Recession of 2008.  But does this mean a recession is just around the corner?


There are two things to keep in mind here.  First, a brief inverted yield curve is not the same thing as a sustained one.  While inversions have preceded every modern recession, inversions do not always lead to a recession.  Think of it this way: You can’t have a rainstorm without dark gray clouds.  But dark gray clouds don’t always lead to a rainstorm.  Make sense?

You see, correlation does not equal causation.  By this I mean that while inversions and recessions are often seen together, one does not actually cause the other.  An inverted yield curve is like a sneeze: It’s a symptom, not the disease itself.  And while a sneeze can mean you have a cold, it doesn’t lead to a cold.  Sometimes, we sneeze because we got pepper up our nose.

Second, let’s assume for argument’s sake that this recent inversion is a warning sign of a future recession.  That doesn’t mean a recession is imminent.  Some analysis suggests that it takes an average of twenty-two months for a recession to follow an inversion.1  That’s a long time!  A long time to save, invest, plan and prepare.

  1. So does an inverted yield curve even matter, then?

I’ll put it simply: It matters enough to pay attention to.  It doesn’t matter enough to be worth panicking over.

Make no mistake, we’re in a volatile period right now.  There’s a lot of evidence to suggest that volatility will continue.  But while comparing the markets to the weather has become something of a cliché, it also makes a lot of sense.  When storm clouds gather, we pack an umbrella or stay inside.  We don’t run for the hills.

The same is true of market volatility.

Remember, an inverted yield curve is an indicator, not a prophecy.  Economists can toss and turn about such things, but you and I are focusing on something much less abstract: your financial goals.  More important than any indicator, more important than the day-to-day swings in the markets, is the discipline we show.  If you think about it, market volatility is really a symptom, too – a symptom of emotional decision making.  Investors see a good headline, and they buy, buy, buy!  That’s a market rally.  Investors see a bad one, and they sell, sell, sell!  That’s a market dip.

Investing based on emotion leads to one thing: Regret.  Regret that we bought into the hype and bought when we should have waited for a better deal.  Regret that we fell into fear and sold when we should have held on longer.  We invest by being disciplined enough to buy, hold, or sell when it makes sense for your situation.

That’s the best way to stay on track toward your goals.  That’s the best way to not toss and turn at night.  We don’t make decisions based on predictions.  We make decisions based on need.

My team and I will keep watching the indicators.  We’ll keep doing our best to explain the twists and turns in the markets.  And we’ll keep doing our best not to overreact to any of them.  In the meantime, please contact me if you have any questions or concerns.  We always love to hear from you!




1 “The inverted yield curve explained,” CNBC, August 14, 2019.  https://www.cnbc.com/2019/08/14/the-inverted-yield-curve-explained-and-what-it-means-for-your-money.html

2 “Long-Term Bond Yield Hits Record Low,” The Wall Street Journal, August 14, 2019.  https://www.wsj.com/articles/bond-rally-drives-30-year-treasury-yield-to-record-low-11565794665

3 “Stocks Skid as Bonds Flash a Warning,” The Wall Street Journal, August 14, 2019.  https://www.wsj.com/articles/asian-stocks-gain-on-tariff-delay-11565769562

4 “Dow tumbles 700 points after bond market flashes a recession warning,” CNN Business, August 14, 2019.  https://www.cnn.com/2019/08/14/investing/dow-stock-market-today/index.html

5 “U.S. Retreats on Chinese Tariff Threats,” The Wall Street Journal, August 13, 2019.  https://www.wsj.com/articles/u-s-will-delay-some-tariffs-against-china-11565704420

Market Volatility 2019

“Investing When Money Markets Moves Our Way”

The last several years, and even the last several months, have been a microcosm of the money markets. The 7% drop in the month of May set off by one of Trump’s tweets was followed by an almost immediately 7% upswing in the month of June and continuing into early July. In the year 2018, we had two different 20% downturns, each of which were promptly followed by strong market upturns. As most of our clients know, and have come to accept, this level of market fluctuation is normal but unpleasant. Our strategy to deal with these market fluctuations is to acknowledge that they will continue to occur, but it is the price that we must pay for the higher equity market returns that we receive and expect to receive in the future. That the new market records would be a good time to address a couple of changes in the markets. First, I have finally decided that it’s time that for me to get on Twitter. Our president has decided that he’s going to, generally speaking, bypass the normal press release mechanism and release new information to the public through Twitter. I understand that Twitter is used for all kinds of purposes other than general policy announcements. It also seems to be used for sparring with your enemies, and it’s certainly being used to communicate directly with the US citizens and bypass the Washington Press Corps. I don’t want to spend too much time on the technical details of our work for you, but I can’t help but notice that the equity market mutual fund ETF purchases by the general public has been running at very low levels with bond fund purchases outrunning them throughout the month of June. That is, most of your fellow investors were selling stocks and buying bonds during the June period when the market was setting market records, unfortunately we cannot help them because they’re not our clients, but it is an indicator to us how many people are poor investors.

It has been and continues to be our recommendation to you that you maintain your investment in these wonderful multi-national rational companies in which you have invested.  The value of these companies may fluctuate dramatically in the stock market.  Your fellow investors may sell out at the latest whim or presidential tweet, but you know and we agree with you, that all of these changes and the daily press fixations on one matter or another all pass very quickly and it becomes insignificant to the long-term health of these rationally run companies.  This is a wonderful time for you to point out to your family that market ups and downs change very quickly, change unpredictably, but that we believe the long-term trend is up and that the 20% up and down turns, the 7% up and down months, are part of the cost of being a good long-term investor.  Please note that during all of last year with its ups and downs and this year with its ups and downs, the dividends in your account have continued to come into your account and to rise.  If you come across any of your good friends or family who are complaining about and concerned about market fluctuation, market volatility, please give them our name and we would be happy to talk to them and see if we can help them.

A final point that I would like to address, because I hear it come up from time to time are various market strategies that fall into the category of technical analysis, sometimes the “trend following,” sometimes they’re called market momentum play.  All of them are designed to offer an investor the possibility of avoiding large market downturns and yet participate in the upside of markets.  Many times, their components will argue for loss protection analysis or plan to protect capital.  We believe that all these technical analysis type programs sound great, a program which avoids serious market downturns.  But unfortunately, we can’t, because they don’t work.

The market technical analysis for rules-based investing is designed to help you stay invested in investment programs that are working well now and avoiding programs that are not working well.  The idea being that the recent past can indicate and predict what the future will be.  Our argument is that the future is unknowable, and that we have faith that capitalism will, and the investment markets moving cycles, will fix any problems that they’ve had in the past, any excesses that they’ve had in the past.  We will move forward, solve our problems, and figure out a way to increase earnings going forward.

The market analysts offer you the possibility and pretend that they have a system whereby they can avoid these losses.  It sounds very enticing because it’s exactly what you would like to hear, that losses can be avoided, and gains realized.  This is not possible, so our strategy to deal with market downturns is for you and your spouse to fully acknowledge that they’re coming, to embrace them, to treat them as part of the entire process, and then to teach your children the exact same formula, so that they don’t make the mistake of getting involved in any one of these market time schemes that promise to have you out of the markets and selling before a downturn, and yet somehow magically getting you back into the markets in time for an upturn.

The last two years are just further evidence and a career’s worth of evidence, that these programs don’t work.  That they have you sell to late, have you buy back into an investment program too late as well, so that you realize a lot of the loss don’t get the gain get the market gets her upturn, and are disappointed anew with significant transition cost all along.  Our approach to dealing with market downturns is to understand that they’re coming.  This is not a prediction for the future, but we understand that they will come.  They will come at an unpredictable, unknowable time, that it’s part of the process.  Both you and your spouse should understand that.  You should explain it to your children so that they can become effective investors as well.

If you, your spouse, or any family members have any questions, please give us a call.  We continue to be optimistic about the future.  Your prosperity is our business.  Thank you.  Contact me with any questions.

Very truly yours,
James Vaughan III

The Family Vacation House #2


Last summer we discussed the Family Vacation Home.  You gave me a lot of good advice regarding how your Family handles the Family Vacation Home.  The following is an attempt to develop Best Practices.  Please comment.  (Click Here to read memo #1 on Vacation Homes).

Our experience, and that of our clients, has been that the vacation home can be the source of great family unity.  As a resident of a North Jersey suburb, I have found that the suburban home is not the one that attracts the family; it is the Summer Home.

What can the family do to make the Summer Home an enjoyable experience for all?  …And a positive force for family unity and prosperity?

The following are some of the strategies that families have used to make the Summer Home an enjoyable experience.  We will also have some of the pitfalls to avoid.  Of course, a “Best Practice” for one Family may be a “Worst Practice” for another!

Finances for the House

By far the biggest source of trouble is financial.  The best answer, of course, is to have the family matriarch and patriarch buy the house and pay for it!  If the ongoing expenses of the house are funded by parent assets, the financial burden of supporting the Vacation House is solved for the second generation!  The Vacation House can be endowed with its own funding source (as an alternative where children share expenses).  One family reported that a multi-year ledger is kept of expenses of the property with a running capital account for each child.  Many of you reported that as soon as any member of the second generation cannot support the Vacation House, then it should be sold.


The second generation will start to have their own children, and the house will fill up.  This creates the problem of scheduling.  Who is going to go to the house at different times, how many family members can they bring, can the grandchildren bring friends?  Suddenly, the house can start to get to be too small.  If the house is large enough to contain all who come, that is a blessing, but it is not usual.

It works best if the matriarch and patriarch can handle scheduling.  In families where the grandparents view scheduling as enjoyable, a way to stay in touch, then the scheduling becomes a positive.  If grandparents view scheduling as a burden because the children are disagreeing, then we have an early indication that the Vacation Home should be sold after the parents no longer use it.


The house must be maintained.  Maintenance requires both management and money.  If parents are willing to handle the maintenance management, then this works best.  The duties for the maintenance may pass to the next generation at a different time then the financial obligation to pay for the maintenance.

When the parents die, there can be significant conflict among the next generation regarding finances, scheduling and maintenance.  In the Best Practices category, family members who want to be bought out of the house, typically because they’re not using it, or cannot afford it, should be allowed to sell their share to the other family members.  The Selling Family member wants a fair price and typically is aware of creating new financial burdens on the buying remaining Family member. Certainly, the strategy is to allow conflict-free exit from the Family House.  Some families have created a capital account for each child’s share of the Vacation Home.  If a child does not want to or cannot make a capital contribution, then an adjustment is made on the Vacation Home books.  All capital accounts are then made whole upon the sale of the Vacation Home.

Several client families have had success discussing how to handle the Family Vacation Home in advance of the death of parents.  Many report significant and surprising disagreements after the parents’ death.  After all, the Vacation House is supposed to promote family unity.

If the money to support the house is the issue, then an alternative family strategy could be to endow the house, the family vacation location, with separate funding to support the house.

Want to hear a Worst Practice?  In every Family where the parents transferred the Vacation Home to the children because the parents could not afford it, the Family relationships (and the Vacation Home) deteriorated.

Have you had some strategy work (or not work) with your Family’s Vacation Home?  Please let me know.

You may forward this email to any of your Family Members or Friends who are involved with a Family Vacation Home.  We would like to be a resource to keep a Family Vacation Program going – Your Grandchildren are counting on us!

Jim Vaughan

The Family Vacation House


Summer is here and the family is going down to the Family Vacation House.  This is a great time to get out in the sunshine, see your family members, and have a great time on the beach, in the ocean, at the lake, or wherever it is that you may go.  But it can also be a time when the closeness of family also leads to other problems, scheduling conflicts, who pays for the house, who fixes the leaky faucets and other repairs, varying definitions of important concepts like “cleanliness”, “friends”, “sharing”.

Our experience, and that of our clients, has been that the summer home can be the source of great family unity.  As a resident of a North Jersey suburb, I have found that the suburban home is not the one that attracts the family; it is the Summer Home.

As you may know, my clients are the source for many of my best ideas.  I want to know what your Family did correctly or incorrectly in regard to your Summer Home.  All comments are welcome!

What can the family do to make the Summer Home an enjoyable experience for all?  …And a positive force for family unity and prosperity?

The following are some of the successes, maybe we will even call them “Best Practices”, that families have done to make the Summer Home an enjoyable experience.  We will also have some of the pitfalls, we will call them “Worst Practices”, to avoid.  We are aware that a “Best Practice” for one Family may be a “Worst Practice” for another!

Many families have had the family matriarch and patriarch buy the house, pay for it, and that continues and works out just fine, especially for the second generation!  The second generation starts to have their own children and the house fills up.  This  creates the problem of scheduling.  Who is going to go to the house at different times, how many family members can they bring, can the grandchildren bring friends?  Suddenly, the house can start to get to be too small.  If the house is large enough to contain all who come, that is a blessing, but it is not usual.  If the matriarch and patriarch can pay for the house throughout this entire process, that works best.  But at some point the house must be maintained and the duties for the maintenance will pass to the next generation…Now we have two potential areas for conflict – scheduling and finances.

When the parents die, there can be significant conflict among the next generation regarding finances and scheduling.  In the Best Practices category, family members who want to be bought out of the house, typically because they’re not using it, or cannot afford it, should be allowed to sell their share to the other family members.  Of course, the selling Family member wants full price while creating new financial burdens on the buying Family member.  Potential conflict there!

We have seen with various families, it is very difficult to maintain the Family Home when the parents die. From a practical point of view, we don’t live with our brothers and sisters and their families year-round. Why should we expect to go on vacation with them for any extended period of time?

Several client families have had great success discussing how to handle the Family Vacation Home in advance.  They may have concluded that when the parents die, the default position is going to be to put the Summer House on the market for sale.  Certainly, the strategy is to allow conflict-free exit from the Family House. A “Best Practice” might turn out to be that if a family member cannot be bought out, because the other family members don’t have the finances, then that is a signal that it is time to buy out all and sell the house.  All family members might agree in advance.  Since most vacation homes are in towns or areas where there are other homes for purchase, the proceeds from the buyout of the main Family Home can be used to subsidize, or even purchase, a few homes in the area.

If the money to support the house is the issue, then an alternative family strategy could be to endow the house, the family vacation location, with separate funding to support the house.  To expand this idea further, the separate funding could be used to maintain the home, and might even be used to pay for family meetings and transportation to and from the family vacation location.  The separate funding could even be a bank of sorts to allow for transactions between family members.

Have you had some strategy work (or not work) with your Family’s Vacation Home?  Please let me know.  You may forward this email to any of your Family Members or Friends who are involved with a Family Vacation Home.  We would like to be a resource to keep a Family Vacation Program going – Your Grandchildren are counting on us!

Jim Vaughan

Tariffs and Trade 2019

Please open your economic textbooks to page forty-seven, class, because it’s time to talk about something you probably haven’t thought of since college: tariffs.

On Thursday, March 1, President Trump announced a new plan to institute a 25% tariff on steel imports and a 10% tariff on aluminum.1 Like so many things these days, the response was radically different depending on who you talk to.  More on that in a moment.

Traditionally, tariffs are something most of us don’t have to think about, especially as tariff levels in the United States have been low for decades.  But for investors, President Trump’s announcement has the potential to be very significant.  Why?  Because of the possibility that it could spark a trade war.

Should a trade war actually happen, it could have a major impact on investors.  To understand why, let’s have a short Q&A session.

What are tariffs and why do they matter?

Since it’s probably been a while since your Economics 101 class, let’s quickly cover a few basics.

To put it simply, a tariff is essentially a tax on imported goods and services.  Tariffs can be levied on almost anything: metals, foodstuffs, products, etc.  Historically, tariffs are most commonly used when a country wants to protect certain industries within its own borders.  For example, the Tariff Act of 1930 was designed to protect farmers by increasing the cost of importing agricultural products.  By making it more expensive to import crops from other countries, people would be forced to buy mainly from American farmers.  This is known as protectionism.

Once upon a time, tariffs in the United States were both high and common.  But after World War II, average tariff rates dropped significantly, and have stayed low ever since.  In fact, since the 1970s, the average tariff rate on imports has been well under 10%.2

So are tariffs good or bad?

Remember how I said the response to President Trump’s announcement was radically different depending on who you talk to?  That’s because a tariff’s effects can vary wildly, too.

Tariffs can bring two major benefits:

  • Because tariffs are a kind of tax, they can bring more revenue to the government.
  • Tariffs, and protectionism in general, can be a major boon to certain industries – including the workers within those industries.  In this case, the U.S. steel industry would benefit from a 20% tariff on steel, because it means more people are buying from them instead of their competitors overseas.

You can see why the idea of tariffs can be attractive for many people.

Unfortunately, tariffs can also cause some very negative side effects.  Specifically:

  • Tariffs can make life more difficult for consumers, whether they be individuals, families, or businesses.  That’s because higher tariffs often lead to higher prices, which in turn lead to higher expenses.  For example, if companies must pay more for the steel they need, that could significantly eat into their own profits.
  • Higher tariffs can lead to trade wars.

Okay, so what is a trade war, anyway?

We live in a global, interconnected world.  Toss a stone into the water off one shore and the ripples can be seen near another.  In this case, higher tariffs can cause some very large ripples.

When one country raises tariffs on a certain kind of product, other countries that depend on exporting that product won’t take to it kindly.  As a result, those countries might retaliate by increasing tariffs on their imports, thereby harming the first country.  Before you know it, tariffs become weaponized and a trade war breaks out.

Trade wars are risky things, because they can quickly jump from industry to industry.  Let’s take the current situation as an example.

After President Trump announced his plan to raise tariffs on steel and aluminum, the European Union threatened to do the same to U.S. imports – everything from motorcycles to bourbon to bluejeans.3  Other countries like Japan and Canada, which are both major steel producers and important trading partners, have threatened similar measures.  Should all this happen, the currents of international trade will quickly become choked.  That would lead to higher prices on many goods and services, which in turn would lead to lower profits, higher costs of living, and even – potentially – higher unemployment.

Should all those things happen, the markets will surely suffer.  As an investor, you don’t need me to tell you what that means.

So why did President Trump decide to raise tariffs?

For decades, the United States has seen a worsening trade deficit with many countries.  In other words, we pay more for importing their goods than they do for ours.  According to the Wall Street Journal, the U.S. “ran a global goods deficit of $810 billion” in 2017.4  One of the president’s most long-standing campaign promises was to address that deficit.  It appears that tariffs, along with renegotiating certain trade agreements, like NAFTA, are his tool of choice.

Geopolitical economics is a loaded topic, and there’s a lot of disagreement out there about causes and effects.  Again, tariffs can unquestionably bring lots of advantages, and there’s no question the United States is on the lower end of a trade imbalance with many countries.

At the same time, there’s also no question that Trump’s announcement has spooked both the markets and the global economy.  The Dow fell more than 400 points on the day of the announcement, and continued to fall the next day.5  Many world leaders have already warned about a trade war being a very real possibility.  Even many Congressmen in President Trump’s own party have spoken out against the prospect of higher tariffs.  This isn’t surprising, because the Republican party – or at least a large percentage of it – has traditionally been very much in favor of free trade.

As I’m not an economist, it’s not really my place to decide whether protectionism is good or bad.  It’s worth noting, however, that a trade war did break out the last time the U.S. raised tariff rates this high.

The Tariff Act of 1930, or Smoot-Hawley Tariff Act, raised tariff rates to their second highest level in U.S. history.  These days, economists generally agree that the resulting trade war worsened the Great Depression.  (What no one seems to agree on, though, is by how much.)  On the other hand, the United States is in a very different position in 2018 than it was in 1930.  Back then, the Great Depression had long-since started.  These days, our economy is much stronger.  That makes it hard to predict how hard a trade war will hit.

What happens now?

There are still so many things we don’t know.  For instance, we don’t know if President Trump will actually go through with his plan.  If he does, we don’t know if the tariffs will apply across the board, or if they’ll only be levied against certain countries.  (This is something many of his advisers are recommending.  If our closest allies are exempted, then the effects of a trade war would likely be minimized.)  And we don’t know what other nations will do in response.

What we do know is that the possibility of a trade war can have a substantial impact on the economy and the markets.

At the moment, I don’t believe we need to take any action. Back in February, the markets took a hit due to the threat of inflation and rising interest rates – and then recovered.  While the markets dipped slightly in response to President Trump’s announcement, it’s far too early to make any changes to your portfolio.

However, this is why my team and I keep such a close eye on what’s going on in the world.  Part of my job is to keep you informed of any ripples in the water so that you always stay afloat.  It’s impossible for me to say what’s going to happen next, but I’ll tell you this: We’ll always be here keeping our hands on the tiller.

In the meantime, please contact me if you have questions, or if there’s anything I can do for you!

1 “Trump to Impose Steep Aluminum and Steel Tariffs,” The Wall Street Journal, March 1, 2018.  https://www.wsj.com/articles/trump-wont-quickly-announce-new-tariffs-on-aluminum-steel-1519921704
2 “Average U.S. tariff rates, 1821-2016,” U.S. International Trade Commission, https://www.usitc.gov/documents/dataweb/ave_table_1891_2016.pdf
“U.S. allies around the world steel for Trump tariff tussle,” The Wall Street Journal, March 2, 2018.  https://www.wsj.com/articles/asian-allies-steel-for-trump-tariff-tussle-1519977304
4 “Trade Wars Are Good, Trump Tweets,” The Wall Street Journal, March 2, 2018.  https://www.wsj.com/articles/trade-wars-are-good-trump-tweets-1519996161
“U.S. Stocks Tumble After Trump Announces New Import Tariffs,” The Wall Street Journal, March 1, 2018.  https://www.wsj.com/articles/global-stocks-struggle-after-bad-month-1519868670?tesla=y